管理層發言
Thank you for joining us for the Upland Software Third Quarter 2025 Earnings Call. The conference call will be recorded and available for streaming on our website, with a replay accessible for 12 months. The third quarter 2025 earnings release was distributed today at 8:05 a.m. Central Time, and it can be found on Upland's website if you haven't received it. I will now hand the call over to Jack McDonald, Chairman and CEO of Upland Software. Please proceed.
Thank you, and welcome to our Q3 2025 earnings call. I'm joined today by Mike Hill, our CFO. On today's call, I will start with our Q3 review. And following that, Mike is going to provide some detail on the numbers and guidance. After that, we'll open up for Q&A. But before we get started, Mike, could you read the safe harbor statement, please?
You bet, Jack. During today's call, we will include statements that are considered forward-looking within the meanings of the securities laws. A detailed discussion of the risks and uncertainties associated with such statements is contained in our periodic reports filed with the SEC. The forward-looking statements made today are based on our views and assumptions and on information currently available to Upland management. We do not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements. On this call, Upland will refer to non-GAAP financial measures that, when used in combination with GAAP results, provide Upland management with additional analytical tools to understand its operations. Upland has provided reconciliations of non-GAAP measures to the most comparable GAAP measures in our press release announcing our financial results, which are available on the Investor Relations section of our website. Please note that we are unable to reconcile any forward-looking non-GAAP financial measures to their directly comparable GAAP financial measures because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. With that, I'll turn the call back over to Jack.
Thank you, Mike. In the third quarter, we exceeded our revenue guidance midpoint and met our adjusted EBITDA guidance midpoint. Our core organic growth rate for Q3 was 3%. We achieved an adjusted EBITDA of $16 million, resulting in an adjusted EBITDA margin of 32%. Free cash flow for the quarter stood at $6.7 million. During this quarter, we acquired 97 new customers, including 14 significant ones, and expanded our relationships with 168 existing customers, with 13 of those being major expansions. The new and expanded partnerships span across our AI-powered product lineup. As previously mentioned, we successfully refinanced our debt in Q3, extending the maturity by six years to July 2031, and adding a $30 million revolver, which enhances our financial stability with well-structured debt and sufficient liquidity. Our net debt leverage has decreased to 3.8x, and we are on pace to meet our net leverage target of 3.7x by year-end. We plan to continue using our free cash flow generation to lower our debt further in 2026 and beyond. On the product side, we earned 49 badges in G2's Fall 2025 market reports, highlighting our strong portfolio momentum. Notably, Upland RightAnswers and Upland BA Insight are now available in the AWS Marketplace, with BA Insight featured in the new AI Agents and Tools category, facilitating easier customer access to these AI solutions and accelerating enterprise AI adoption. We were also recognized in Forrester's Customer Service Solutions Landscape in their Q3 2025 report, which acknowledges vendors enhancing customer service operations. Our inclusion underscores the value of products like Upland RightAnswers in helping companies resolve issues more efficiently, improving agent productivity while ensuring quality customer support, and positioning these products as integral to broader Agentic AI customer service deployments. Overall, we are committed to delivering innovation that enhances productivity, data intelligence, and customer results. InterFAX has added AI features for better fax content discovery, Adestra has improved bot-click detection and integrated with Raiser's Edge NXT, and Second Street has launched a QR code generator to enhance its competitions platform. On the bookings front, we secured several attractive deals this quarter, including two major AI agreements. The first is a $2 million multiyear contract with a Fortune 100 tech company, which is using RightAnswers as the foundation for a generative answer engine across its workforce, leveraging AWS Bedrock AI and S3 to cut support costs and promote self-service. The second is a $1 million multiyear agreement with a global pharmaceutical firm that is replacing a legacy enterprise search system with our AWS Bedrock-powered BA Insight platform, significantly reducing costs while improving search accuracy and governance. These developments exemplify the progress we have made over the past few years in AI-enhancing our portfolio, affirming that our plan is effective, with promising early indicators. In summary, our Q3 results highlight the significant advancements we've achieved in streamlining our product offerings to drive growth and profitability. We are realizing positive core organic growth. While quarterly results may vary, the long-term trend shows progress, with substantial new customer acquisitions validating both our product market fit and our AI strategies. The objective now is to build on these successes. Our adjusted EBITDA margins have notably increased, and we are maintaining strong free cash flow. Mike will provide more details shortly, with a goal of approximately $20 million this year, steadily increasing into next year. Additionally, we have fortified our balance sheet by paying down debt, extending the maturity of our debt, lowering our leverage, and forecasting continued deleveraging. Our liquidity has also been enhanced with the new revolver. I will now turn the call back to Mike.
All right. Thank you, Jack. And I think Jack covered a lot of these points on the financials for the quarter, so I'll just make a few additional comments here. On the income statement for Q3, revenues were as expected when taking into consideration our recent divestitures. Q3 gross margins increased from Q2 as expected as a result of the higher margins realized in our ongoing product lines. Our adjusted EBITDA and adjusted EBITDA margin came in as expected with our adjusted EBITDA margin of 32%, up from 21% from the third quarter of 2024. And we still expect full year adjusted EBITDA margin of around 27%. For the third quarter of '25, GAAP operating cash flow was $6.9 million. And as Jack mentioned, free cash flow was $6.7 million. Our full year 2025 target free cash flow remains at around $20 million. And on our balance sheet at the end of Q3, we had outstanding net debt of approximately $217 million, factoring in approximately $23 million of cash on our balance sheet, which is about a 3.8x net debt leverage ratio to trailing adjusted EBITDA, and we're on track to hit our target of 3.7x net debt leverage by year-end. For guidance, for the quarter ended December 31, 2025, we expect reported total revenue to be between $46.4 million and $52.4 million, including subscription and support revenue between $44.1 million and $49.1 million, for a decline in total revenue of 27% at the midpoint from the quarter ended December 31, 2024. This year-over-year decline is primarily due to the divestitures completed earlier this year. Fourth quarter 2025 adjusted EBITDA is expected to be between $13.8 million and $16.8 million, which at the midpoint is a 3% increase as compared to the quarter ended December 31, 2024. Fourth quarter adjusted EBITDA margin is expected to be 31% at the midpoint, which is a 900 basis point increase from the 22% adjusted EBITDA margin for the quarter ended December 31, 2024. For the full year ending December 31, '25, we expect reported total revenue to be between $214 million and $220 million, including subscription and support revenue between $202.5 million and $207.5 million for a decline in total revenue of 21% at the midpoint from the year ended December 31, 2024. This year-over-year decline, as I mentioned, is primarily due to the divestitures completed earlier this year. Full year 2025 adjusted EBITDA is expected to be between $56.5 million and $59.5 million, which at the midpoint is an increase of 4% from the year ended December 31, 2024. Full year adjusted EBITDA margin is expected to be 27% at the midpoint, which is a 700 basis point increase from the 20% adjusted EBITDA margin for 2024. Now additionally, I'll note that we lowered the midpoint for our full year 2025 total revenue and adjusted EBITDA guidance ranges by $800,000, primarily as a result of lower forecasted perpetual license revenue, but I'll point out that the midpoint of our subscription support revenue guidance range remains unchanged. So to recap, our product portfolio is now much more focused around the KCM market. Our core organic growth rate is in a positive multiyear uptrend from negative 2% 2 years ago to negative 1% last year to now around positive 1% this year, and we are targeting 3% next year and 5% plus thereafter. Big new customer wins have validated our product market fit in several key markets, and those major wins have validated our product AI strategy. Our adjusted EBITDA margin is in a significant multiyear expansion trend to over 30% here in Q3, noting that our margins are always highest in the back half of each calendar year. And when we zoom out, we see adjusted EBITDA margins expanding further from 20% last year in 2024 to our guidance midpoint this year of 27% to a target of 29% plus next year, a target of 31% plus in 2027 and then, of course, our long-term operating model target of 32%. Cash flows remain strong as we continue to target around $20 million of free cash flow this year, as I mentioned, and we're targeting an increase of about 10% next year, so targeting around $22 million of free cash flow next year. We have significantly strengthened our balance sheet, improved our liquidity, paying down $242 million of debt since the beginning of last year, refinanced our debt, extended the maturity by 6 years out to July 2031, added a $30 million undrawn revolver, providing us with ample liquidity, and we are forecasting continued deleveraging with our free cash flow generation. So with that, I'll pass the call back to Jack.
All right. Thank you, Mike. Let's open the call up now for Q&A.
分析師問答
Our first question comes from Scott Berg with Needham.
I guess, I got a couple. You guys had a much better core organic growth quarter here, as you called out. I think Jack mentioned targeting 3% next year, 5% next year. Maybe it was Mike, I apologize, I didn't write down who it was. But tell me 1 quarter is never quite a trend. I guess what are you seeing in the current sales pipelines and the opportunities that you're working that gives you confidence that those targets look reasonable to achieve over the next year or 2?
Yes, I think you're right. One quarter doesn't make a trend. And of course, as I indicated, things will bounce around quarter-to-quarter. But as Mike pointed out, the long-term trend is positive, right? In '23, we were negative 2%, in '24, negative 1%. For full year '25, looking at positive 1% and then again, targeting 3% for full year '26. So I think the overall trend is good. The green shoots that we're seeing that give us confidence in that outlook are some of the larger deals I talked about. For a number of years, we were not getting those larger deals. And now with the work that's been done to AI-enable the product portfolio and to position some of our core knowledge and content management products as key parts of enabling tech and these broader enterprise AI implementations and driving partnerships with some of the biggest players in the market, the Microsoft and Amazons of the world. We're starting to see some of these in Google. We're starting to see some of these larger opportunities. So I mentioned a $2 million multiyear deal for a Fortune 100 tech company, a $1 million multiyear deal for a major pharmaceutical company. It's the opportunities in the pipeline for those larger deals that give us optimism as we go into next year.
Helpful there. And then I guess I wanted to ask a clarification on the fourth quarter guidance, Mike, you mentioned license revenue is going to be down about $800,000 in the quarter than prior expectations. Is that a deal that just flipped subscription and you won't take the revenue in the quarter? Or is that something that moved out? Just maybe help understand what that movement is relating to.
Yes. Most of that $800,000 is a perpetual license revenue that we had originally projected, forecasted that doesn't look like it's going to happen. So that's just pure license revenue, Scott. Now there's a small bit of professional services revenue as well that won't show up either to kind of combine to make that $800,000. And of course, that falls to the bottom line on EBITDA. So that's why subscription support revenue guidance at midpoint remains the same.
Helpful, Mike. And I'll just sneak one last one in here is on the quarter. Any change to gross revenue retention trends or maybe net that helped drive the 3% growth number?
We do not report on net dollar retention rates throughout the year as that is a year-end metric. Excluding the divestitures, it was 99% at the end of last year and we expect to stay in the upper 90% range this year. I believe those trends are stable and consistent.
Our next question comes from the line of DJ Hynes with Canaccord.
Congrats on a nice quarter. It seems like pretty down the middle print. Good to see the improving growth in margins. And Jack or Mike, I appreciate your comments. Jack, maybe just one for you. As you look at the opportunity and think about the growth matrix going forward, how much should come from installed base versus net new? And I guess the follow-up to that is like does the presence of a couple of these key products in the AWS Marketplace help with either of those efforts more than the other?
So in terms of growth from the installed base versus net new, if you look at our net dollar retention rates over the past few years, they've trended up from low to mid-90s to upper 90s. And so that's providing a solid foundation for growth. And now we just need to stack some of these growth deals with new customers on top of that to get to growth targets. And so as we look at where that's going to come from, it's really around our knowledge and content management product portfolio, which is roughly 75% of our revenue and products like the ones we've talked about, RightAnswers, BA Insight, Panviva, Qvidian, InterFAX, and others will play a key part in that.
And then a follow-up just on AWS, the marketplace. Like is that a tool that's more powerful for making it easier for existing customers to buy more? Or is it like a discoverability that may help with landing new customers?
Yes, it's a little bit of both. And so it's positive on both fronts there. And then there are broader partnerships, right, with some of these major players whereas folks are going in and doing these agentic enterprise AI implementations, having a knowledge solution that is auditable and reliable and not prone to hallucination is key. So some of these sort of headless knowledge management opportunities where we are part of a broader enterprise AI implementation. I think that's going to be a promising area for us over the next couple of years here.
And our last question comes from the line of Jeff Van Rhee with Craig-Hallum.
Jack, on the sales and sales execution, you guys are constantly trying to refine the process. Just maybe spend a second there, what's working, what's not? How are you tweaking the process at this point?
I think what's working is upgrading the sales force, bringing in more expert domain sellers on the field side. What's working is the SEO strategy that we began rolling out a few years ago. So we're getting higher quality leads into the hands of those salespeople and our SDR team has been doing a nice job there. What's working in early stages, but we're starting to see some promising results from is the use of intent data from platforms like 6sense to refine our outbound motions. And frankly, it impacts our inbound motions as well to really focus in on prospects that are in the market actively looking for solutions. I'd say what's working is the investments that we're starting to make in channel and specifically in working more closely with larger partners like Amazon and Google and Microsoft to play our role in some of these larger enterprise AI implementations. So I think those are all green shoots on the demand gen and sales side. It's not going to be perfect every quarter, and we've got sales cycles to deal with and all of that. So as I mentioned before, it will bounce around quarter-to-quarter. But I think the long-term trend here, as we talked about, is positive.
And maybe just a similar question on the development side. Obviously, with the remaining portfolio trying to drive up those retention numbers, you want to stay on the leading edge of innovation. How do you feel about the pace of new product introductions? Kind of any call-outs there in terms of trend that gives you some measurables around how quickly you're innovating versus maybe what you were a year or 2 ago?
Yes. It's a dramatic improvement. It really started with the center of excellence in India as a core for our development effort. Obviously, our development efforts are broader than that. We've got onshore teams as well as offshore teams in India and elsewhere. But the work that's been done across the board in terms of solidifying the foundations, increasing uptime and availability and reliability of the products, in terms of introducing AI into the product portfolio and smartly and efficiently AI enabling these products where it makes sense. In terms of the partnership with product management to make sure we're prioritizing the right items in the roadmap to meet the demands of both existing customers and new prospects. It's been a steady improvement over the past 3 or 4 years, like Dan Doman and his team. Dan is our Chief Product and Operating Officer, and his team, a tremendous amount of credit there. And it's been steady progress, one foot in front of the other. And now we look back on what's been done over the past 3 or 4 years, and it's really starting to bear fruit. And we're seeing it, frankly, again, in getting a shot at these larger deals and starting again to land these million-dollar deals, multimillion dollar, multiyear deals, which we frankly hadn't seen for a while. So yes, that's the picture there.
Good. And maybe last, if I could sneak the last one in here on the perpetual reduction. Was that presumably as a new customer? And is that an instance where that revenue is gone or just pushed out? If it's gone, was it a competitive deal you just lost? If so, why? I know that's maybe 5 questions, but if you can tackle that, that would be great.
Yes, it wasn't just one customer. It was the perpetual license revenue. We typically see an uptick in Q4, but we didn't experience that this year. There's no significant story or major target that disappeared; it's simply a slight decline on the perpetual license side.
That concludes the question-and-answer session. I would like to turn the call back over to Jack McDonald for closing remarks.
Okay. Well, thank you so much. We look forward to seeing you on the next earnings call.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.